Dividend Tax

• Domestic holdings

  Companies that have a share in one or more domestic companies - irrespective of the extent - are exempt from taxation on their earnings from such participation. There is thus no corporate income tax to be paid in this case with the exception of the EURO 1,750 minimum taxation, and with the exception of income deriving from the sale of such shares or for income arising from liquidation.
   
  

• Foreign holdings

  For an Austrian company holding a minimum direct share of at least 10% in a foreign company for a continuous period of 12 months, the earnings of the parent company are tax-free in this case of an 'international affiliation privilege' as well. This also holds true for income deriving from the sale of such holdings. On October 17, 1996, the European Court of Justice ruled on the EC Parent-Subsidiary Directive the first time (Denkavit, Vormeer), with the result that dividends received from the subsidiary during the 12 months period are tax-free as well.
   
  The privilege will not be applicable in case of abuse which is assumed if the three items mentioned below are given all together:
  
  1. the main business purpose of the foreign subsidiary company is to
      - yield interest or
      - receive royalties or
      - sell shares;
     banking and leasing activities are not considered as part of the main business;
     
  2. the subsidiary is subject to an income taxation less than 15%;
     
  3. no evidence is made that shareholders of the Austrian holding company, representing more than 50% of the capital, are individuals non resident in Austria.
   
  In such case the subsidiary´s income tax would be deductible from the income tax of the Austrian holding company unless a double taxation treaty does not overrule the national regulation.
   
  On the other hand, the Parent-Subsidiary-Directive of the EU in most cases will make sure that no tax will be withheld in Austria on dividends paid to an EU share-holder. Enclosed please find a draft of the Austrian law ruling the relationship between an Austrian holding company and her foreign subsidiary, and her foreign EC-parent company as well.
   
  Holding companies may also make use of the legal form of the foundation.